Exit Strategy Planning: Building a Sellable Business

Even if you plan to run your business forever, building one that could be sold creates options and forces discipline. The qualities that make a business sellable—predictable revenue, documented processes, reduced owner dependence—are the same qualities that make it easier to run.

Why Exit Planning Matters Early

Many founders think about exit only when they're burned out or have an offer. This is a mistake:

• Valuation drivers take years to build
• Tax optimization requires advance planning
• Buyer relationships develop over time
• Clean operations must be built, not faked

What Acquirers Look For

1. Predictable Revenue

What they want:

• Recurring revenue (subscriptions, retainers)
• Long-term contracts
• Low customer concentration
• High retention rates

Red flags:

• Project-based revenue
• Top customer >20% of revenue
• Declining or volatile revenue
• High churn

2. Growth Trajectory

What they want:

• Consistent year-over-year growth
• Large addressable market
• Clear growth levers
• Proven scalability

Red flags:

• Declining growth rates
• Saturated market
• Growth dependent on founder
• Unclear market opportunity

3. Operational Independence

What they want:

• Documented processes
• Strong management team
• Systems and automation
• Minimal owner involvement in operations

Red flags:

• Owner does everything
• Key person dependencies
• Tribal knowledge
• No standard procedures

4. Clean Financials

What they want:

• GAAP-compliant accounting
• Separated personal/business expenses
• Accurate revenue recognition
• Clear cost structure

Red flags:

• Mixed personal expenses
• Cash-basis accounting
• Unclear revenue timing
• Tax optimization that obscures profit

5. Defensible Position

What they want:

• Proprietary technology or IP
• Strong brand recognition
• Network effects
• Switching costs

Red flags:

• Easily replicable offering
• No barriers to competition
• Commoditized market
• Platform dependency

Valuation Multiples by Business Type

| Business Type | Revenue Multiple | EBITDA Multiple | |---------------|------------------|-----------------| | SaaS (>40% growth) | 8-15x ARR | 20-40x | | SaaS (under 20% growth) | 3-6x ARR | 10-15x | | E-commerce (branded) | 2-4x | 4-8x | | E-commerce (reseller) | 0.5-1.5x | 2-4x | | Agency/Services | 0.5-1x | 3-6x | | Content/Media | 2-5x | 6-12x | | Marketplace | 3-8x | 15-30x |

Key insight: Recurring revenue commands premium valuations

Building Exit Value Over Time

Year 1-2: Foundation

Focus on:

• Proving product-market fit
• Establishing repeatable processes
• Setting up proper accounting
• Building initial team

Year 3-4: Scale

Focus on:

• Growing recurring revenue
• Reducing owner dependence
• Documenting everything
• Building management layer

Year 5+: Optimize

Focus on:

• Maximizing profitability
• Strategic positioning
• Relationship building with potential acquirers
• Clean-up of any issues

Exit Options

1. Strategic Acquisition

Best for: Complementary businesses, technology/IP

Pros:

• Highest valuations
• Synergy premiums
• Quick closes possible

Cons:

• Culture clashes
• Job uncertainty for team
• Integration challenges

2. Private Equity

Best for: Profitable businesses with growth potential

Pros:

• Partial liquidity possible
• Growth capital
• Operational expertise

Cons:

• Debt financing pressure
• Performance expectations
• Eventual second exit needed

3. Individual Buyer

Best for: Smaller businesses, owner-operated

Pros:

• Simpler process
• Often founder-friendly
• Continued legacy

Cons:

• Limited buyer pool
• Lower valuations
• Financing challenges

4. Employee Buyout (ESOP)

Best for: Values-driven exits, tax optimization

Pros:

• Tax advantages
• Employee retention
• Legacy preservation

Cons:

• Complex structuring
• Valuation limitations
• Ongoing obligations

Common Exit Mistakes

1. Waiting Too Long

Burnout leads to distressed sales. Start planning 2-3 years before you want to exit.

2. Over-Optimizing for Exit

Don't sacrifice business health for metrics that look good on paper.

3. Neglecting Due Diligence Readiness

Buyers will scrutinize everything. Issues discovered late kill deals.

4. Single Buyer Process

Competition creates leverage. Always have multiple interested parties.

5. Ignoring Post-Exit Life

What will you do after? Many founders struggle with identity without their business.

Exit Readiness Checklist

Financials:

• [ ] 3 years of audited financials
• [ ] Clean separation of personal/business
• [ ] Accurate MRR/ARR reporting
• [ ] Documented cost structure

Operations:

• [ ] Standard operating procedures
• [ ] Management team in place
• [ ] Systems documented
• [ ] Vendor contracts transferable

Legal:

• [ ] IP properly assigned to company
• [ ] Clean cap table
• [ ] Employee agreements current
• [ ] No pending litigation

Market:

• [ ] Clear competitive positioning
• [ ] Customer contracts transferable
• [ ] Supplier relationships stable
• [ ] Market opportunity documented

Key Takeaways

1. Plan for exit from day one
2. Recurring revenue commands premium valuations
3. Owner dependence destroys value
4. Clean operations take years to build
5. Multiple buyers create leverage

Explore our industry pages for exit potential data, or get our Business Opportunity Report for detailed exit analysis of specific opportunities.